The Birth of the New Real Estate Market in the USA

Who is Ed DeMarco? What is the FHFA?

Even though it did not come entirely unexpected, the day has finally arrived. President Obama has decided to nominate Mel Watt instead of Ed DeMarco as the Director of the FHFA (Federal Housing Finance Administration).

Most people have never heard of the FHFA, nor Mr. DeMarco. Who cares? Why should one care? You should actually all care. The real estate market has officially entered a new chapter. Analysts, economists, investors and homeowners, throw away everything you thought you knew about real estate and start all over. I would like to get right to the point so if you do not know what the FHFA is, you can read about the agency here yourself. Ed DeMarco has been the acting director of the agency since 2009.

At issue is the write down of principal, which DeMarco refused to support. That is really not the point though. It is the role of government in housing. It is the writing down of principles.

The government has always had a hand in the real estate market, be it through Section 8, the FHA, mortgage interest deductions, renters tax credit, capital gains, etc. Up until September 2008, real estate financing has been supported by the two quasi government agencies – Freddie Mac and Fannie Mae.

The termination of DeMarco's acting directorship is a formal declaration that real estate in the United States is now officially nationalized and socialized. From this point forward:

All real estate financing will be done through Freddie, Fannie, Ginnie or a new government bureaucracy to be created and named later.

All interest rates will be determined by the Federal Reserve, which will be purchasing all loans.

The government will determine what percentage of their income households should pay on their mortgages.

Regarding point 3 above, the government can retroactively re-determine what households should pay, based on the direction of political wind.

In the event home prices go down, debt will be forgiven.

If the private sector wishes to compete with the government, there is the CFPB (consumer finance protection bureau) which will demonize you if anything goes wrong, and what "wrong" means will be defined at some future date.

Housing, and more importantly, a mortgage, is now an entitlement, just like healthcare. How the country is going to pay for it will be, you guessed it, determined at some future date.

In closing, I wish I were really just being facetious, but unfortunately, I see the above as just the start of the new era.